Bitcoin, Not Blockchain!

Blockchain is a trendy term, utilised by budding startups offering numerous crypto-assets. Smart contracts, decentralised oracles, NFTs, and so on. The trend is further fuelled by numerous journalists, bloggers, podcasters, and influencers, whose enthusiasm is often bought. Meanwhile, blockchain is a dead-end that doesn't bring any technological revolution, except for Bitcoin.

Blockchain is simply a database. The fact that data is placed in cryptographically linked packages doesn't change that. Its downside is low efficiency. Hence the sarcastic saying that blockchain is just a "slow database." The upside is transparency, making manipulations in the database impossible to hide. Retroactive changes are immediately visible due to cryptographic dependencies between blocks in the chain.

That's it. A slow database that can't be changed unnoticed.

Fake Decentralisation

The mere fact that changes in the database cannot be hidden does not mean that they cannot be made and imposed on users. Blockchain itself does not protect users from such a risk. Take Ethereum as an example. In 2017, a narrow group of individuals decided to retroactively modify its blockchain to eliminate specific transactions from the history. They then effectively imposed the modified blockchain on users. Dissenters who did not agree with this were left with an unchanged version that lost its significance.

At first glance, one might think that the ability to intervene in the blockchain for a noble purpose is a desirable feature. What's wrong with removing the consequences of a hacking attack? Let us acknowledge that the very possibility of such intervention means that the system remains under someone's control. It is not independent, and its users must trust the entity controlling the blockchain. We must believe that it will not use its control to censor transactions or falsify data.

So, the question arises: how is such a blockchain supposed to be better than other database tools controlled by corporations or states? It is difficult to see such value at all. Regardless of detailed technological differences, from the perspective of data control, we are dealing with a database like many others. One could even argue that using blockchain in such a case doesn't make sense. Since control over the database is de facto centralised and in the hands of specific individuals, it is better to use database tools that are faster and more efficient than any blockchain. For example, well-established databases like MySQL or Oracle. Moreover, advertising such a blockchain as a decentralised system is simply misleading users.

What Sets Bitcoin Apart from Other Blockchains

The revolution was in creating a database that cannot be censored, falsified, or changed retroactively. I suggest pausing for a moment and rereading the previous sentence to fully grasp its significance.

Satoshi Nakamoto introduced an entirely new category. Blockchain is its essential element, but it is not sufficient. Proof of work (proof-of-work) is also necessary, a technology known in the Bitcoin network as mining. Only the original combination of these two technologies brought about a breakthrough.

Blockchain, Yes, but Decentralised!

Blockchain becomes more resistant to modifications the more decentralised it is. Successfully making retroactive changes to a blockchain—such as in the described case of Ethereum—can be evidence of a lack of decentralisation. A blockchain is truly decentralised if it has been replicated on a peer-to-peer network across tens of thousands of devices enjoying identical status, controlled by independent users, none of whom have influence over the network as a whole. No one manages such a network, no one grants or revokes permissions within it, and no one can exclude anyone from it. Everyone operates on equal terms according to consensus rules. These rules are uniformly enforced, and any attempts to violate them are automatically eliminated and penalised.

Such a decentralised blockchain will only emerge if joining the network is easy and done by many individuals. Remember that each network participant stores the entire set of data (the full blockchain) on their own device. As the blockchain grows with each new block, the disk space required for storage also increases. If the blockchain expands too rapidly, fewer people will be able to afford the devices needed to store it. Nodes are increasingly stored on large servers or in cloud services as their overall number decreases. The risk of an attack or the network being taken over by a small group of individuals increases.

Bitcoin's decentralisation is ensured by fairly long, ten-minute intervals between blocks and a block size limit, which slows down the growth of the blockchain compared to the capacity of easily accessible and cheap hard drives. Despite the fact that with each block, the blockchain occupies more space, maintaining a node is relatively inexpensive and easy. And increasingly so. As a result, there are tens of thousands of nodes, and the network spans all continents.

Longer intervals between blocks and smaller blocks also mean fewer transactions. The price of decentralisation is thus a reduction in network performance, measured in the number of transactions per second. However, this is a price worth paying because it provides an incredibly robust foundation on which we can build additional layers using new technologies. Scaling Bitcoin involves seeking technologies that enable payments with the least possible burden on the blockchain. Examples of such technologies include the Lightning Network, Liquid, Fedimint, and Cashu.

Proof of Work (PoW)

In the proof-of-work system, the blockchain can only be altered by someone who, in an energy-intensive and costly process of mining, discovers a new block. The necessity of incurring a real cost effectively deters attempts to retroactively change Bitcoin. Adding a new block is very expensive. Retroactive changes would require replacing one of the older blocks and then mining additional blocks so that the forked blockchain becomes longer than the original version. Accumulating the energy and computational power necessary for this surpasses the capabilities of anyone, including governments. Attempting such an attack would entail a high risk of colossal loss, and the potential benefit would be limited to the ability to double spend some bitcoin. In any case, it would be much more advantageous to join the network and mine according to its rules to receive rewards for mined blocks.

In this purely automated and objective, yet also ruthless and stringent manner, the accuracy of records on the Bitcoin network has been ensured for almost fifteen years. In proof-of-stake systems, where miners are replaced by so-called validators, this defensive mechanism does not exist. The network can defend itself by removing dishonest participants (slashing), but the risk of a successful attack, such as through a conspiracy of validators, is incomparably higher due to much greater centralisation and the lack of an objective real cost of the attack in the form of energy expenditure.

Lack of Competition

No other network is decentralised to a degree even remotely close to Bitcoin. None is protected by such a large group of individuals willing to bear the cost of energy to safeguard their own and others' savings, as well as the freedom to conduct monetary transactions without censorship.

Altcoins and similar assets recorded on blockchains protected by proof-of-stake technology cannot compete with Bitcoin in terms of neutrality and security. They are vulnerable to various attacks and censorship. Since they remain under the control of investors, foundations, or even individual startups or entrepreneurs, they cannot serve as money in any serious settlements. No significant market participant, be it a state, investment fund, or large corporation, will risk the security of their assets based on arbitrary decisions and moods of the Ethereum Foundation or other similar interest groups, whether formalised or not. Blockchains protected by proof-of-stake can be used for testing new ideas, entertainment, or storing images. They are hopelessly inadequate for the purpose of being money.

Blockchain itself is not a revolutionary technology of the future but, at best, a playground for ideas. Its utility is limited by low efficiency. It becomes truly useful when it is decentralised and distributed across many devices worldwide. Provided that we also ensure its independence from users, which is only possible through proof-of-work technology. Without this, we simply deal a database under someone else's control, but one that is unscalable and slow. It's essential to keep this in mind.

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